May 27 2016
“Producers in less-developed countries compete by keeping costs low. Conventional wisdom holds that improving working conditions (which typically costs money) would undermine the competitive advantage these firms enjoy. Our research suggests an alternative to this race to the bottom. It involves replacing traditional mass manufacturing with ‘lean manufacturing’ principles.”
Michel Baudin‘s comments:
In 2014, three academics from Oxford, Stanford and Brown researched the impact of Lean Manufacturing on working conditions in the Nike supply chain. The conclusions in the HBR article are less nuanced than in their original paper in Management Science, which concluded: “Using difference-in-differences estimates from a panel of over three hundred factories, we find that lean adoption was associated with a 15 percentage point reduction in noncompliance with labor standards that primarily reflect factory wage and work hour practices. However, we find a null effect on factory health and safety standards.”
The paper itself is 45 pages long, explaining the methodology and the findings. There is no consensus on what Lean Manufacturing is, and collecting data about its effect on working conditions in multiple countries is a challenge. The authors addressed both issues by focusing on the Nike supply chain. There, “Lean Manufacturing” is whatever Nike says it is. Independently of its Lean efforts, Nike is auditing working conditions in supplier plants, which yields the data that the researchers used. This choice made the analysis possible, but it also restricted the scope of the conclusions that could be reached.
The article in Management Science draws cautious inferences, but the article about the article in HBR already floats the much broader notion of Lean Manufacturing as an “End to Sweatshops.” In five years, after many retellings of this story, I will be surprised if it is not called the “Nike effect” and used to support blanket statements about how Lean improves working conditions in the third world.
See the story it in the Harvard Business Review